RBI's second quarter review of monetary policy due tomorrow
The markets are close to their all-time highs, and this is a disconnect with the country's macro economic situation.
Inflation is still high (thanks to ONION) which might make the Reserve bank of India ( RBI) raise policy rates again when it meets tomorrow (October 29).
The RBI is an inflation fighter. In all likelihood, therefore, the RBI will raise the repo rate by 25 basis points to 7.75% and, possibly, cut the interest rate on its marginal standing facility at which banks borrow from the RBI by a like amount.
Inflation, both at the wholesale and consumer levels, is well into danger zone. Against the RBI's projected average rate of 5.5% for 2013-14 and target rate of 5% for March 2014, wholesale price index inflation was an unacceptably high 6.46% in September 2013 and the consumer price index is close to double digits.
The markets are likely to take cues this week from the outcome of RBI's second quarter review of monetary policy, US Federal Reserve meeting and F&O Derivative expiry due on Thursday.
US Federal Reserve will hold policy meet on October 29 and expectations are it maintains its 'status-quo' stance on tapering. The Fed's policy-setting arm meets on Oct 29-30 and is expected to hold off any move to scale down its $85-billion monthly bond-buying programme.
On the domestic front, markets are factoring in minimum of 25 bps rate from the Reserve Bank of India (RBI). However, any negative surprise on future guidance of rates will upset the trend and we may see some correction.
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